Trade war drags down global business confidence
TIER composite indicators show some pessimism

The Taiwanese Economy in October 2018

Despite the fact that European and Japanese economic recovery still
remains, the growth momentum is hardly solid. It is also very evident
that the Chinese economic growth has been slowing down with respect
to its internal financial troubles and external tensions with the
US. The plunging of global crude oil prices and the Fed's continuous
tightening measures further ramp up the uncertainties. As a result,
the service and manufacturing composite indicators issued by the
Taiwan Institute of Economic Research (TIER) decline for the third
consecutive month.
Taiwan's exports in October 2018 increased by 7.35% compared with
the same month of 2017. Regarding imports, Taiwan's imports in October
2018 increased by 17.64% compared with imports in October 2017.
Exports and imports grew by 8.0% and 12.5% y-o-y respectively from
January 1st till the end of October this year, Taiwan's exports
and imports gave a trade surplus of US$ 40.05 billion or a decrease
by 12.88% on a y-o-y basis for the first 10 months of this year.
Taiwan's consumer price index (CPI) grew by 1.17% in October 2018
compared with the same month of previous year. The core inflation
rate excluding prices of the energy and food grew by 0.72% in October,
2018. In addition, the wholesale price index (WPI) moved up by 5.95%
in October 2018 on the year-on-year basis. On the cumulative basis,
the CPI went up by 1.60% and WPI went up by 4.01% from January 1st
till October 31st 2018 compared with the same period last year.
As for exchange rate, the NTD went weaker due to the relatively
stronger USD, as the Fed is likely to continue its rate hiking cycle
and capital continued to flow out. Anyway, the NTD/USD stood at
30.968 in late October 2018 indicating a 1.36% depreciation. Regarding
the interest rate, it remained low and steady in October2018 due
to the continued loose monetary operations by the CBC with respect
to the most recent CPI reading and potential global uncertainties;
the lowest and highest over-night call rate in October 2018 stood
at 0.177% and 0.189% respectively.

Business Outlook

The portion of manufacturing firms who perceived business were
better than expected in the target month was 20.0% or increased
by 9.2 percentage points compared with respondents who perceiving
better business in the previous month. The portion of those perceived
business were getting worse in the target month was 37.5% or decreased
by 4.5 percentage points than 42.0% perceiving worse business of
the previous month. The portion of manufacturing firms who perceived
business remained constant in the target month was 42.6% or decreased
by 4.6 percentage points compared with 47.2% perceiving constant
business in the previous month. Overall, manufacturing firms perceived
the business in the target month was not as pessimistic as previous
month.
In addition, the portion of manufacturers who perceived business
would be better in the next six months was 7.2% in the target month
or decreased by 6.4 percentage points than 13.6% feeling more optimistic
about the future in the previous month. The portion of firms who
perceived the economic outlook would be worsening was 39.6% or increased
by 6.7 percentage points compared with 32.9% feeling rather pessimistic
about the future in the previous month. The portion of manufacturing
firms who perceived business remained constant in the next six months
stood at 53.3% or decreased by 0.2 percentage points compared with
53.5% feeling neutral about the business outlook one month earlier.
Overall, manufacturing firms perceived the business in the near
future was somewhat more pessimistic than the previous month.
The manufacturing composite indicator for October, 2018 adjusted
for seasonal factors on moving average, saw a downward correction,
and from a revision of as 93.46 points in September moved down to
88.35 points in October. Figure 1 shows a decrease of 5.11 points,
the third month of consecutive decline.
The TIER service sector composite indicator for October, 2018 adjusted
for seasonal factors on moving average, also saw a downward correlation,
and from a revision of as 95.55 points in September moved down to
90.80 points in October. Figure 1 shows a decrease of 4.75 points,
also the third month of consecutive decline.
In addition, the TIER Construction Sector Composite Indicator for
October, 2018 adjusted for seasonal factors on moving average, saw
an upward correction, and from a revision of 95.15 points in September
went up to 97.19 points in October. Figure 1 shows an increase of
2.04 points, the first mount after a one-month dip.

Forecast on Individual Industries

Following are manufacturers' sentiments that are industry-specific
in the monthly TIER surveys:

● Manufacturers' sentiments that have been in decline in the October
survey and are expected to deteriorate over the next six months
include:
Man-made Fibers Manufacturing, Securities.

● Manufacturers' sentiments that have been in decline in the October
survey, but are expected to improve over the next six months include:
Insurance.

● Manufacturers' sentiments that have been in decline in the October
survey and are expected to remain sluggish over the next six months
include:
Electrical Appliances and Housewares Manufacturing, Bicycles Manufacturing,
Wholesale.

● Manufacturers' sentiments that have improved in the October survey
and is expected to deteriorate over the next six months include:
None.

● Manufacturers' sentiments that have improved in the October survey
and is expected to remain upbeat over the next six months include:
Wood and Bamboo Products Manufacturing, Cement and Cement Products
Manufacturing.